Gateway Rejects Buyout Offer

Gateway Inc., the third-largest personal computer company in the United States, said Friday that it rejected an unsolicited $450 million bid for its retail business from eMachines Inc. founder Lap Shun Hui.

Gateway said the Aug. 23 offer for the retail operations is not in the best interest of its shareholders.

"Gateway's board of directors and management team remain committed to taking the appropriate steps to enhance shareholder value," the company said in a brief statement. A Gateway spokesman, David Hallisey, declined to elaborate on the decision.

Hui did not immediately respond to a message seeking comment.

Analysts said Gateway's rejection was no surprise.

"It was a ludicrous offer," said Rob Enderle, an analyst with the Enderle Group research firm. "What would be left would be a nonviable company."

In March 2004, Gateway bought eMachines from Hui for $290 million in cash and stock. Less than a month later, Gateway closed its retail stores and adopted eMachines' strategy of selling through big-name retailers such as Best Buy Inc., Circuit City Stores Inc. and Wal-Mart Stores Inc.

Gateway's share price has languished amid fierce competition and a struggle to sell its gear to businesses as well as to customers over the Internet and the phone. Its consumer retail operation has fared much better, accounting for 64 percent of the company's second-quarter revenue.

The share price surged after Harbert Management Corp., a Birmingham, Ala., investment firm, disclosed last month that it acquired 10.2 percent of Gateway stock through its Harbinger Capital unit.

Hui's bid, which came days later, fueled speculation that Irvine-based Gateway would be sold.

Scott Galloway of Firebrand Partners LLC, which joined Harbert in the Gateway investment, said Friday that his group has had a "helping-hand" relationship with Gateway management.

Shares of Gateway fell 7 cents, or 3.5 percent, to $1.93 in Friday afternoon trading on the New York Stock Exchange. They are still up about 50 percents since Aug. 10.

Hui is Gateway's second-largest shareholder after Ted Waitt, who founded the company in 1985. Hui previously expressed interest in buying Gateway and taking it private.

Hui faulted Gateway last month for failing to name a permanent replacement for Wayne Inouye, who resigned as chief executive in February. Hallisey, the company spokesman, said Friday that a replacement would be named "in the September-October time frame."